Medalla sees 25-50 bps hike in Feb. meeting

By Keisha B. Ta-asan, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) is likely to raise benchmark interest rates by 25 or 50 basis points (bps) at its meeting in February, its governor said, citing the need to anchor inflation expectations.   

BSP Governor Felipe M. Medalla said the pressure to match the US Federal Reserve’s policy tightening was waning, and the need for large policy adjustment is “no longer there.”    

“In that scenario, you have a weaker dollar to begin with, so the pressure on us to match US increases will be much lower,” he told reporters on Tuesday.   

The Monetary Board has raised rates by a total of 350 bps last year to tame inflation and slow the peso’s decline. This brought the policy rate to a 14-year high of 5.5%.

Last year, the US Federal Reserve delivered 425 bps of cumulative rate hikes, which brought its own policy rate to 4.25-4.5%.

The peso weakened against the dollar last year, closing at a low of P59 in October. The peso has since rebounded, finishing at a six-month low of P54.87 on Tuesday.

Mr. Medalla also said the BSP is “way ahead” of central banks in the region.

“We’ve already done more work than them, they have more work to do than us. Our main concern now is inflation and to some extent the strong dollar,” he said.   

Inflation rose to 8.1% in December, from 8% in November and 3.1% in December 2021. This brought the average inflation in 2022 to 5.8%, the highest in 14 years.     

With the BSP set to take further steps in taming price pressures, Mr. Medalla expects inflation to be within the central bank’s annual 2-4% target by the second half, falling below the midpoint of that target by late 2023 or early 2024.   

The BSP chief noted that inflationary pressures are broadening and until that is addressed, monetary tightening will continue.

“Now, what if we don’t even need to do more rate hikes? It’s easy to reverse that later. I would rather cut rates in that scenario than scramble to raise interest rates. The moment the people start to not trust us anymore, that would be a more difficult path to take,” he said in mixed English and Tagalog.   

“I’m not worried about the monetary policy reducing output. What I’m worried about is (if) we’re late, and there’d be a greater sacrifice of output later on,” he said.

Mr. Medalla noted that the economy may grow by more than 6% this year as pent-up demand would continue to support growth.    

The Philippines’ gross domestic product (GDP) expanded by 7.6% in the third quarter, bringing the nine-month average to 7.7%. The government expects GDP to have grown by 6.5-7.5% in 2022, and targets 6-7% growth in 2023.     

The Philippine Statistics Authority is scheduled to release the fourth-quarter 2022 GDP data on Jan. 26.

The Monetary Board is scheduled to meet on Feb. 16 for its first policy meeting this year.